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Why the iPod can be conquered

Richard Siklos at Fortune Magazine tackles an increasingly common point of view: That Apple's dominance of the digital media market could be quite temporary, thanks to the company's arrogance, poor relations with partners, and utter disregard for customers (contrary to its carefully honed marketing):

Just a few recent ripples of discontent against the iPod include Universal Music Group, the world's biggest music company, this summer downgrading its licensing deal with the online iTunes store to an "at will" basis so that it can do exclusive sales deal for its music with other download outfits.

Or NBC pulling downloads of its TV shows - some of which were top sellers on iTunes - from the online service, because, like their distant cousins at UMG, they bristled at the terms Apple was offering. (Among other things, songs purchased on iTunes can't be played on non-Apple machines and the company has been steadfast that one-size-fits-all pricing is critical iTunes' success.)

That last bit is hypocrisy on Apple's part, since they don't actually engage in one-size-fits-all pricing at all, in the iTunes Store or elsewhere. I think what Apple is really demanding is one-size-fits-all pricing from its content partners. The company feels free, however, to charge consumers whatever they feel like. This distinction is somehow lost on a lot of people who blindly defend the company at all costs. Anyway...

Apple holds more than 70 percent of the market for portable music players and some 80 percent of the online music sales business through its iTunes Music Store - a fairly daunting lead.
So why do its rivals bother coming at Apple in the business of mobile music at all? Because, as iconic and singular as the iPod is, it is not as ubiquitous as one might think.
Apple is on track to have shipped nearly 120 million iPods worldwide by the end of this year, and nearly half that amount - about 60 million - Americans own at least one of the devices. (Many iPod owners are repeat buyers.) Thus, while the iPod is by far the leading mobile music player, it's penetration of the U.S. population stands at around 20%, and it is lower overseas.

Interesting. This is something that Mac fans like to point to: Because the machine's market penetration in the US (~ 5 percent) is much higher than it is worldwide (~ 2.4 percent), they prefer to focus on that. There's no surprise that sales of Apple's expensive devices--whether they're computers or portable electronics--is much higher in the US than elsewhere. We're the richest country on earth. (Put differently, Americans are more likely to spend money on "stuff" than those from other nations, whether they can afford it or not. Gotta keep that economy rolling, people.)

By comparison, Motorola has just under 30 percent of the considerably larger mobile phone market - 230 million handsets - in the United States. And, of course, that's a lot lower penetration than Microsoft's domination of desktop computer operating systems. In short, the iPod's numbers mean that MP3 players have not achieved must-have status for most people.

Which makes sense. iPods are gadgets, not must-have tools like PCs and phones. This explains, of course, why Apple is betting on the iPhone.

The repeat buyer thing is interesting. As a reviewer, I've owned at least one copy of every iPod has ever made, but the reality is that I'm a serious iPod fan and user as well, and I would have 9and have) purchased several of these devices for myself and others regardless. In this way, the pure number of devices sold is somewhat meaningless: Every Zune sale is a sale to a new user at this point, while the same cannot be said of iPod owners. In fact, the Mac market was sustained for several years by nothing other than repeat buyers. My guess is that a good percentage of iPod owners (again, especially in the US) upgrade every year or two. This is one of those interesting conditions that's hard to measure or evaluate. But it's clearly part of the equation.

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